Tax implication of an investment if not the sole but is the most important consideration while evaluating various investment opportunities. It is impertinent for a person to know the tax aspect of an investment opportunity before he parks his money. This is important because of the fact that tax paid reduces the returns generated and it becomes necessary for an investor to know the real rate of return on his investments.
However, with a view to increase the level of investments in the economy the government has from time to time announced various investment options to the investors which give them tax relief. One of such investment option is Equity Linked Savings Scheme.
What exactly are Equity Linked Savings Schemes?
Equity Linked savings scheme is floated by the mutual funds. It is basically a scheme, which according to the rules invests in the equity shares of the companies. Such investment will have to be made in the mutual fund specified u/s 10(23D) of the Income Tax Act to be eligible for rebate.
What is nature of the ELSS?
Usually ELSS are open ended in nature which involves a compulsory lock in of 3 years of claiming deduction u/s 80 of Income Tax Ac, 1961. However, some ELSS are also closed ended in nature which available for subscription only for once like TATA Tax Advantage – 1.
How does investing in ELSS benefit an investor?
Investing in ELSS provides an investor with twin benefit of tax saving and scope of good returns.
The incorporation of Section 80C in the Income Tax Act, 1961 has proved to be a boon for the investor. Now an investor can claim deduction u/s 80C by investing in ELSS. By investing in this scheme an investor can save tax up to Rs.33600.
ELSS requires the investor to lock in his money for 3 years. This is necessary because of the fact that in long run the scope of negative returns from equities reduces tremendously. Over periods of time equities have outperformed the other asset classes.
